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Dear Credible Money Coach,
I co-signed a private student loan from Navient for my daughter in 2007. She has struggled to make payments ever since, so now she wants to file for bankruptcy to end the predatory nature of the simple interest loan that has accrued interest since its creation. . The balance is $8,000 higher than it was when it started. My question is, if my daughter is successful in getting the loan back, will Navient be able to sue me for the balance? – John
Hello John and thank you for your question. Navient made headlines in January when it agreed to settle a lawsuit brought by multiple state attorneys general alleging the lender made predatory loans and engaged in unfair practices with student borrowers. .
before your daughter file the balance sheet, I encourage her to explore whether she qualifies for relief under the Navient Agreement. The settlement does not apply to all Navient borrowers. However, this affects approximately 66,000 students who took out private student loans from 2002 to 2010 and live in the states that participated in the trial.
Refinancing can be another way to reduce student loan costs. You can use Credible to compare student loan refinance rates from multiple lenders.
Cancellation of student loan under the agreement
Navient, which spun off from student loan company Sallie Mae in 2014, has agreed to forgive loans for around 66,000 borrowers who took out Sallie Mae loans from 2002 to 2010 and defaulted. Navient says it will notify borrowers who qualify for loan forgiveness under the settlement once the court approves the deal.
Since your daughter took out her private student loan in 2007, she may qualify if she is in default and lives in a participating state: Arizona, Arkansas, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Georgia, Hawaii , Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nebraska, Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio, Oregon, Pennsylvania , Rhode Island, South Carolina, Tennessee, Virginia, Vermont, Washington, West Virginia and Wisconsin.
If your daughter lives in a participating state and doesn’t want to wait to hear from Navient, she can contact her state attorney general’s office for guidance.
Repayment of student loans through bankruptcy
It was almost impossible to get student loans discharged following bankruptcy until recently. A July 2020 decision by a federal appeals court in New York changed the law, setting a precedent for private borrowers like your daughter. It allowed a Navient borrower to discharge his loan through bankruptcy.
What happens to a bankrupt co-signer
When you co-signed a student loan with your daughter, you promised Navient that you would pay off the debt if she couldn’t. This means that if it defaults, Navient has the right to ask you to repay the loan. And in most cases, a co-signer can still be held responsible for a debt even if the primary borrower declares bankruptcy.
Generally, if a borrower files for Chapter 7 bankruptcy, erasing their debts, creditors can sue the co-signers to collect them. You may have more protection if your daughter files for Chapter 13 bankruptcy, which creates a new repayment schedule. So your daughter (not you) should still pay off her debt with Chapter 13, but on a more manageable schedule.
Alternatives to bankruptcy
John, if your daughter is not eligible for relief under Navient’s recent legal settlement, she should explore other options before filing for bankruptcy. Since the financial and credit ramifications of bankruptcy are severe, it should only be used as a last resort.
A Chapter 7 bankruptcy typically stays on your credit report for 10 years, and Chapter 13 stays for up to seven years, making it difficult to get credit at great rates for many years.
Although your daughter may be wary of private student loans, she should consider refinancing her current Navient loan to one with a lower interest rate and more favorable repayment terms to make it more manageable. She can make comparisons to get a better loan from a private student loan refinance lender to find out what offers are available.
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About the Author: Laura Adams is a personal finance and small business expert, award-winning author and host of silver girl, a weekly audio podcast and top notch blog. She is frequently quoted in the national media and millions of readers and listeners benefit from her practical financial advice. Laura’s mission is to empower consumers to live richer lives through her work as a speaker, spokesperson and advocate. She earned an MBA from the University of Florida and lives in Vero Beach, Florida. Follow her on LauraDAdams.com, instagram, Facebook, Twitterand LinkedIn.